Strategic Management and Benchmarking

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Chapter 8

Chapter Objectives:

After this chapter, students shall be able to:
Describe the process of benchmarking
Appreciate why companies go into benchmarking
Understand present performance and apply benchmarking principle

Content Outline
Definition of benchmarking
Reasons to benchmark
Process of benchmarking
Selecting what to benchmark
Understanding present performance
Benchmarking planning
Learning from the data
Using the findings
Basic criticism of benchmarking


According to L. S. Pryor, “Benchmarking is measuring performance against that of best-in-class organizations; determine how the best in class achieve those performance levels, and using the information as the basis for goals, strategies, and implementation.

Essential in this definition are two elements. First, measuring performance requires some sort of unit of measure. These are called metrics and are usually expressed numerically. The numbers realized by the best-in-class benchmark are the target. The organization looking for improvement then plots its own performance against the target. Second, benchmarking requires that managers understand why their performance differs. Bench markers must develop a thorough and in depth knowledge of both their process and the process of the best-in-class organization. An understanding of the differences allows managers to organize their improvement efforts to meet the goal. Benchmarking is about setting goals and objectives, and about meeting them by improving process.


Benchmarking is a tool to attain business and competitive objectives. It is powerful and effective when use for the right reasons and aligned with organizational strategy. It is not a remedy that can replace all other quality efforts or management processes. Business organizations must still determine which markets to serve and decide the strengths that will enable them to gain competitive advantage.

Benchmarking is one tool to help business organizations develop those strengths and lessen weaknesses. Furthermore, benchmarking requires an external orientation, which is critical in an environment where the external outlook greatly reduce the chance of being caught unaware by competition.

Benchmarking is time and cost efficient. Because the processes involve imitation and adaptation rather than pure invention, time and money are saved. Benchmarking partners provide a marking model of an improved process, which reduces some of the planning, testing, and prototyping effort. As the old saying goes, why reinvent the wheel.

The major weakness of benchmarking is the fact that best-in-class performance is moving target. New technology, in particular, can create quantum leap performance improvements. Example: the uses of Electronic Data Interchange (EDI). Car manufacturers no longer use paper to purchase parts from supplier. A computer tracks inventory and transmit orders directly to a supplier’s computers. The supplier delivers the goods and payment is electronically transmitted to the supplier’s bank. SM and Robinsons uses barcodes scanners and satellite data transmission to restocks its stores, often in a matter of hours. These applications of EDI save tens of thousands of worker hours, as well as help to meet customer requirements.

For business functions, benchmarking enhances innovation by requiring its practitioners constantly to scan the external environment and to use the information gathered to improve the process. Important technological breakthroughs can be located and adapted early.


Business organizations that benchmark adapt the process to best fit their own needs and culture. Although the number of steps in the process may vary from organization to organization, the following six steps contain the core techniques, such as:

1. Decide what to benchmark.
2. Understand current performance
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